Two Trends Driving Direct-to-Consumer Retail Innovation

It’s been exciting over the past year to see how the new crop of hot direct-to-consumer (D2C) brands are changing the retail landscape. With a focus on not just bringing product innovation to stale categories, but also on using data to create a better shopping experience, they’re quickly becoming the industry’s gold standard for customer experience.

Today’s consumer doesn’t want to be sold to—they want to have an immersive shopping experience that includes straightforward pricing and killer online and in-store experiences. From their branding to social media outreach and other customer communications, these brands collectively put the customer first.

Digital-first darlings like Warby Parker, Away Travel, and Dollar Shave Club get this. Each made their respective categories (typically seen as non-sexy) and shopping experiences cool and fun. Let’s take a closer look at why this approach is becoming the new norm.

Generational changes are evolving retail expectations

Millennials are expected to surpass the 72 million Baby Boomers in population in 2019, as their numbers hit 73 million. They’re already the largest age group in the furniture market, making up 37% of the market as of 2014. Millennials live where the jobs are—which means they’re furnishing small apartments in expensive cities.

Millennials live where the jobs are—which means they’re furnishing small apartments in expensive cities.

As they go about their days, they’ve become used to sharing visuals through Snapchat and Instagram that show all aspects of their day-to-day lives. This has led to them being dubbed The Instagram Generation. With more direct access to brands online—through brand social channels and influencer marketing interactions, Millennials (and rising group, Gen Z) are not into just transactional retail. They want to be part of the process—from giving brands product ideas and feedback or just feeling like part of shaping the brand through lots of communication. This personal interaction drives authentic relationships and can even create an almost a cult-like following, like the one Seed Beauty enjoys.

Seed is embracing the opportunity to build 1:1 relationships this lucrative customer market by providing 24/7 support and actively engaging with their millions of fans on social as part of their product development process. In WWD, Seed Beauty’s John Nelson said this process led to the creation of a new highlighter, blush and eyeshadow that consumers had direct say in.

While Baby Boomers viewed their brand relationships as mostly one-sided, today’s consumer expects to have personalized brand interactions. In an era where their favorite celebrities are just a Tweet or an Instagram story away, consumers expect—and receive—1:1 brand communications. From inviting Wendy’s to troll them, to pitching Oreo ideas for new flavors, or using Sephora’s Facebook bot to schedule a makeover, the way we interact with brands has fundamentally changed. Smart brands realize this and have committed to using social as a relationship builder, not just a brand message platform.

In an era where their favorite celebrities are just a Tweet or an Instagram story away, consumers expect—and receive—1:1 brand communications.

The D2C brand standouts like Casper, Allbirds, etc. are the ones who are capitalizing on this by creating physical retail spaces that take a lifestyle approach to selling. Their trend-setting retail spaces give their brand fans an opportunity to be a part of the brand—and in a social media-worthy way. They’ve realized that to draw today’s consumer into your store, you need more than a cookie-cutter store concept. And traditional retailers are finally taking notice with nearly 80 percent of retailers saying it’s “business critical” to integrate omnichannel experiences into their stores. Today’s customer is researching and buying just about everything online. To drive them into your physical store, it’s got to offer a uniquely compelling experience that surpasses what they can find online.

Technology driving new retail experiences

It’s undeniable that the advances in technology over the past twenty years is a major element in these generational changes. While some Baby Boomers have struggled with technology adoption and change that didn’t take root until they were in middle age, Millennials have grown up with technology advancing exponentially on an annual basis.

Each new social platform becomes another way to interact with their friends and favorite brands and influencers. But at the same time, we’re also seeing technology develop that takes the human element out of some shopping transactions. With Amazon Dash buttons, IoT powered refrigerators, and voice-activated shopping through Alexa or Google Home, consumers can almost passively shop. Our recent research found a 41% increase in the number of consumers using voice devices to shop within the last 6 months of 2017. Overall, 51% are using voice devices to research before they buy, with 36% using them to add items to their shopping list and 30% using them to track their packages.

As voice assistants become ingrained in the purchase process, these tech innovations have the potential to disintermediate the relationship between brand and consumers. So how can D2C brands be sure they’re still developing that direct relationship and staying a relevant part of the conversation as that channel evolves? Technology may be the answer to that too.

Both Warby Parker and Lenskart (in India) offer AR frame try-on and mobile prescription checking. Madison Reed bolstered their initial D2C hair color offering with a virtual assistant for hair color recommendations. Madison Reed has evolved from their online-only roots (so to speak), and is now starting to distribute through Sephora, and opening their own color bar salons, creating an innovative in-person brand experience.

Small brands make big impact

While many of the D2C brand innovators are still small, with most under $1B in annual sales, they’re making a big impact on their overall retail categories. In the men’s grooming category, for example, Gillette’s share of the U.S. men’s razor business fell from 70% in 2010 to 54% in 2016 with the rise of popular men’s grooming companies like Harry’s and Dollar Shave Club.

Venerable shoe brand Nine West shuttered physical stores as those sales fell 5.2%. Meanwhile, online-only players like Allbirds ($16MM in revenue) and M.Gemi ($9MM in revenue) have gained nearly 15 percentage points of share over five years.

While these changes are pushing some retailers to embark on customer experience initiatives, others are acquiring the upstarts to add some lustre—and technical know how—to their brand arsenal. Gillette parent Unilever acquired their primary disruptor Dollar Shave Club for $1B. Phillips Van Heusen acquired True & Co. And Millennial-favored beauty brands Becca and Too Faced were acquired by Estee Lauder.

The lesson other big retailers like TUMI and Nike have learned is it can be lucrative to add a direct-to-consumer offering to give a special experience and exclusive products to their biggest brand fans.

Regardless of if they choose to acquire startup talent through an acquisition or partner with startups that can help them build their own modern retail experience, it’s clear the retail behemoths need to evolve or go the way of Toys ‘R Us and the other “bigger is better” retailers of the past. Today’s consumer doesn’t want thousands of options from retailers, they want a know-you experience. Can you deliver it?

Tara is Director of Luxury and Strategic Brands at Narvar. Her passion for innovative retail came from working in merchandising & ecommerce at leading global bands like Louis Vuitton, Walmart.com and Gymboree.